Client Update: Richards Estate sets the limits on actions against LTD insurers

Michelle Chai & Jennifer Taylor

Justice Ann Smith of the Supreme Court of Nova Scotia recently dismissed an action against a disability insurer for being out of time. The case, Richards Estate v Industrial Alliance Insurance and Financial Services, helpfully reviews the interplay between the Insurance Act, the Limitation of Actions Act, and the test for summary judgment.

Facts

Paul Thomas Richards became unable to work in late 2008 due to fatigue, depression, and other ailments. He received long-term disability (LTD) benefits from the defendant, Industrial Alliance, until 2011, when he was advised by Industrial Alliance that he no longer satisfied the definition of total disability in his group LTD Policy. Mr. Richards appealed the decision to terminate LTD benefits, and his appeal was denied in March 2012.

He passed away in September 2015.  On November 15, 2015, Mr. Richards’s two children sued Industrial Alliance, on behalf of the estate and themselves (together, the “Plaintiffs”). The Plaintiffs alleged that Industrial Alliance breached the Policy and acted in bad faith. Industrial Alliance brought a motion for summary judgment on the evidence, arguing that the Plaintiffs’ claim was statute-barred.

Top 4 takeaways

  1. The limitation period was one year, as found in the Policy and the Insurance Act.

The Policy had a limitation period similar to that found in many LTD policies, providing that actions against the insurer “…shall be absolutely barred unless the action or proceeding is commenced within one year (or such longer period as is required under the applicable legislation of the jurisdiction of the action).”

Justice Smith confirmed that the “applicable legislation” was the Nova Scotia Insurance Act and the governing provision was section 209. Justice Smith further confirmed the limitation period set out in section 209 was one year (after the furnishing of required evidence) (para 111).

Section 209 is found in Part VIII of the Insurance Act,¹ which deals with life insurance. The Plaintiffs argued the Insurance Act did not apply to disability claims, or alternatively that the one-year limitation period in the Insurance Act had the effect of shortening the two-year limitation period in the Limitation of Actions Act (“Limitation Act”)² which the Legislature could not have intended.

The Insurance Act expressly includes disability insurance in the definition of “life insurance”, and therefore Justice Smith agreed with Industrial Alliance that section 209 “is applicable to disability insurance claims” (paras 96-99).

The limitations clock started to tick on one of two dates in early 2012. The first possibility was January 13, 2012, when Mr. Richards furnished the required evidence. The second possibility was March 12, 2012, the date of the Industrial Alliance letter denying his appeal. According to Justice Smith, the latter “was a clear and unequivocal denial of future benefits.”³

Justice Smith did not have to decide the exact date when the clock started ticking. The action was started in November 2015, almost three and a half years after the latest of the two dates, so it was out of time either way (para 100).

  1. There was no applicable saving provision in the Limitation of Actions Act – or the Insurance Act.

The Plaintiffs relied on several provisions of the new Limitation Act in the hopes of extending the limitation period.

First, the Plaintiffs pointed to the transition provision in section 23 of the Limitation Act. Subsection (3) provides that claims discovered before September 1, 2015 (like this one) had to be commenced by the earlier of September 1, 2017 and “the day on which the former limitation period expired or would have expired.”

In this case, the reference to the “former limitation period” was not to the former Limitation of Actions Act, but to “whatever source the limitation period might come from”, i.e. the Insurance Act.  Section 6 of the Limitation Act says that, in the case of conflict between the Limitation Act and another statute, the other statute will prevail. That meant section 209 of the Insurance Act and its one-year limitation period would prevail, so the transition provision of the Limitation Act did not assist the Plaintiffs.

The Plaintiffs also argued that Mr. Richards lacked capacity to bring his claim in time, relying on section 19 of the Limitation Act (limitation periods in the Limitation Act do not run while a claimant is incapable of bringing a claim because of the “claimant’s physical, mental or psychological condition”).

However, the one-year limitation period was not established by the Limitation Act; it came from the Policy and the Insurance Act. For this reason, Justice Smith rejected the Plaintiffs’ capacity argument, following Cameron v Nova Scotia Association of Health Organizations Long Term Disability Plan. In any event, Justice Smith found that the Plaintiffs had not proven incapacity, as their supporting evidence was either inadmissible or irrelevant.

The Plaintiffs also sought relief from forfeiture, under section 33 of the Insurance Act. Justice Smith rejected this argument, too, concluding the failure of the Plaintiffs to commence their action within the limitation period constituted non-compliance with the contract, and therefore relief from forfeiture was not available (para 195).⁴

  1. A bad faith claim is not necessarily a separate claim with its own limitation period.

In May 2018, the Plaintiffs had amended their pleading to add allegations of bad faith against Industrial Alliance (para 176). Justice Smith recognized that “breach of an insurer’s duty of good faith or intentional infliction of mental distress can constitute an independent cause of action” in some cases (para 178).⁵ But that was not the case here: Justice Smith held that the allegations of bad faith and the claim that benefits were wrongly denied to Mr. Richards were “one and the same for the purposes of the limitation analysis” (para 186).

  1. There is a streamlined test for summary judgment in limitations cases.

Justice Smith blended the general test for summary judgment from Shannex Inc v Dora Construction Ltd with the two-step test from Nova Scotia Home for Coloured Children v Milbury (para 43):

(1) Did the defendants establish that there are no genuine issues of fact on the question of whether the plaintiff’s action is statute barred because the limitation period has expired?

(2) When the defendant pleads a limitation period and proves the facts supporting the expiry of the time period, the plaintiff has the burden of proving that the time has not expired as a result, for example, of the discoverability rule.

In the result, Industrial Alliance established that there were no genuine issues of fact (or mixed fact and law) regarding whether the Plaintiffs’ action was statute-barred, and the Plaintiffs had not met their burden of proving that time had not actually expired (para 196). The limitation period had expired in 2013, and the action brought in 2015 was out of time.

Industrial Alliance succeeded on its summary judgment motion, and the Plaintiffs’ claims were dismissed with costs.

If you would like to discuss how this case might affect you, please contact a member of our Insurance Group.


1 Insurance Act, RSNS 1989, c 231.
2 Limitation of Actions Act, SNS 2014, c 35.
3 For more on limitation periods, see Stewart McKelvey’s client update on “rolling” limitation periods.
4 Curiously, the Court did not consider the argument that section 33 of the Insurance Act was inapplicable in any event, because it is found within Part II of the Insurance Act which expressly does not apply to disability insurance (section 17).
5 Citing the Supreme Court of Canada’s decision in Whiten v Pilot Insurance Co.

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